Underwriting the costs of California's new seismic retrofit rules

Retrofitting assets to comply with California’s strict new seismic building regulations could cost more than $150 per square foot, NAREIM’s Architecture and Engineering meeting has heard.

Cities across California - including Los Angeles, Santa Monica, Oakland, Pasadena and West Hollywood - have put thousands of building owners on notice to assess, plan for and complete the upgrade of seismic measures, as local communities tighten building codes related to earthquake resiliency.

Retrofitting costs are hard to predict owing to the engineering and construction of each property, but the NAREIM Architecture & Engineering meeting learned that estimates for remedial work for buildings with non-ductile concrete structures could range from $25 per square foot to $150 per square foot – not including the cost of refinishing the space post-seismic retrofit or the potential loss of rent.

In LA alone, an estimated 1,250 non-ductile concrete buildings could be impacted by the new rules with the majority being industrial, commercial and office buildings.

And it’s not just non-ductile concrete structures that are affected. Other types of structures also face the potential for significant cap-ex.

Estimates for unreinforced masonry buildings (often older brick properties and stone-clad assets) range from $20 per square foot to $110 per square foot; soft story assets (those with first story open front wall lines and often small apartments with exposed or underground parking spaces beneath) are expected to cost between $5,000 to $25,000 per parking space to improve; while work on tilt-up structures are estimated to cost between $3 and $10 per square foot to upgrade.

During the meeting in Austin members heard from experts and held roundtable conversations on numerous issues including best practices for flood modeling and resiliency; the monetization of parking assets through EV charging, the performance and reliability of emerging HVAC technology, such as VRF and chilled beams, as well as discussions on the improved underwriting of general contractors and allowing buyers early access to new deals as soon as best and final offers are agreed, among other topics.

NAREIM members also discussed emerging regulations surrounding the forever chemicals perfluoroalkyl and polyfluoroalkyl substances, commonly known as PFAS and PFOS, which are increasingly being deemed hazardous by states and have prompted a class action lawsuit against their manufacturers.

The chemicals, dubbed forever chemicals owing to their inability to degrade over time, are used in everyday household items such as microwaveable popcorn bags, food packaging and Teflon cookware and have been widely used in light and heavy manufacturing processes, airports and military bases but can also affect buildings such as car washes.

States such as New Jersey though are starting to strictly regulate against the presence of PFAS and PFOS, as a result causing potentially significant liability issues for property owners where forever chemicals have previously been used.